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Smartphone surge helps ARM beat Q4 expectations

LONDON (Reuters) - A surge in demand for smartphones helped British chip designer ARM Holdings ARM.L win market share and beat analysts' expectations in the fourth quarter, but the economic downturn still trimmed pretax profit by 4 percent.

“(Chipmakers) are designing more ARM technology into a increasingly broad range of end-markets applications, with mobile computing, smartphones and microcontrollers being prominent,” Finance Director Tim Score said in a call with reporters on Tuesday.

Smartphone sales grew 30 percent year-on-year in the fourth quarter to 53 million phones, according to research firm Strategy Analytics, and new vendors are entering the market.

Cambridge-based ARM, whose designs are in more than 90 percent of the world’s mobile phones, reported pretax profit of 32.3 million pounds for the three months to end-December. Earnings per share fell 8 percent to 1.79 pence.

“Demand for ARM’s processor and physical IP technology from industry leaders remains strong, added Score.

A record 1.3 billion chips based on the firm’s designs were shipped in the quarter.

Analysts expected pretax profit of 28.4 million pounds and EPS of 1.6 pence, according to a company-supplied consensus of 29 analysts.

Revenue of 85.5 million pounds for the quarter was 10 percent lower than a year earlier, but beat the 81.5 million pounds analysts forecast.

The firm, whose designs are licensed to chipmakers such as Infineon IFXGn.DE and STMicroelectronics STM.PA, gained market share in 2009, with a 10 percent fall in revenue broadly half that of the semiconductor sector.

ARM said the market was widely expected to pick up in 2010, but speed of recovery was still unclear and would depend on consumer confidence.

But it expected its full-year revenue in dollars to be at least in line with market expectations, which stand at $543.5 million, up from $489.5 in 2009, according to Thomson Reuters I/B/E/S.

IPAD EFFECT

Shares in ARM, which hit a near eight-year high of 205 pence last week on speculation that its designs were in Apple's AAPL.O iPad tablet, were 3.7 percent higher at 197 pence by 1026 GMT, outperforming a 1.1 percent higher European technology index .SX8P.

Analyst Gareth Jenkins at UBS, who rates the shares a “buy,” said a 7.4 percent rise in royalty revenue beat expectations, due to an increased mix towards smartphones coming quicker than expected.

“We believe these are solid results with upside from both royalties and licensing business,” he said.

Score wouldn’t be drawn on the iPad, which contains a processor from PA Semi, owned by Apple and an ARM customer. “It’s fairly well-known that ARM has a lot of technology in pretty much all of the world’s smartphones,” Score said.

ARM signed 25 processor and three platform licenses in the quarter, which analysts said was in line with expectations.

Score said the outlook for licensing in 2010 was positive. “The opportunity pipeline is strong and the technology portfolio is quite rich,” he said.

ARM increased its dividend by 10 percent to a total 2.42 pence a share.

Editing by Rhys Jones and Mike Nesbit

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